The Social Security Trust Fund in the US tracks earnings and is split into two funds for retirees and the disabled. It buys US Treasuries and has a surplus, but concerns about its future have led to suggestions of raising taxes or making it a real savings fund.
In the United States, the Social Security Trust Fund is the mechanism through which taxes collected for Social Security expenses are accounted for. Funding is primarily a method of tracking earnings, and there is no dedicated money that stays in a specific account to be paid out later. It simply keeps track of the money raised.
While many Americans may think there is a significant amount of money raised and saved resulting from the Federal Insurance Contributions Act (FICA), that is not the case. This money is spent on those who are already withdrawing money from Social Security or used for other programs. Thus, it is sometimes referred to as a “break-in” of the Social Security Trust Fund.
As an accounting mechanism, the Social Security Trust Fund is actually split into two trust funds. One is called Old-Age and Survivors Insurance (OASI), which the US government uses to pay benefits to retirees and their survivors. The second fund goes to disability insurance, which is used to pay for benefits for those who are disabled.
Instead of compiling and holding the money, the fund actually buys US Treasuries. Essentially, since both the Social Security Trust Fund and the US Treasury are owned by the US government, it is effectively borrowing from itself. This remains a guaranteed fund until the government defaults on its loans.
Currently, more money is being collected from FICA taxes than is paid into benefits, so the Social Security Trust Fund has a surplus. This is expected to change over time, however, and some say it will no longer have a surplus by 2017. While the fund has built up enough reserves, at least on paper, to remain solvent for much of the 21st century, there are trustees and politicians alike concerned about its future.
A committee chaired by former Federal Reserve chairman Alan Greenspan has recommended raising taxes to keep the Social Security Trust Fund in good health. Others have suggested that the government stop using FICA taxes for other purposes and make it a real savings fund. These solutions would probably both have the same result: raise taxes. If the government stopped using the fund’s money, it would have to raise taxes, borrow from other sources, or significantly cut some current programs.
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